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Unit 5: Customer Relationship Management in Services




          Its objectives are to increase profitability, revenue, and customer satisfaction. To achieve CRM,  Notes
          a company-wide set of tools, technologies, and procedures promote the relationship with the
          customer to increase sales. Thus, CRM is primarily a strategic business and process issue rather
          than a technical issue. In this unit, you are going to learn various aspects of CRM of a service
          firm. In this unit, you will also be introduced to some of the CRM strategies used by service
          firms.

          5.1 Customer Retention through Relationship Marketing

          For a service firm, its marketing philosophy should be:
               To acquire customers
          
               To retain customers
          
               To do business with only profitable customers.
          
                                   Figure 5.1:  Leaking  Bucket  Theory

                                  THEORY OF LEAKING BUCKETS


                               SERVICE                  SERVICE
                              COMPANY ‘A’              COMPANY ‘B’

                                           10% New
                                           Customers
                                           every year






                                   5% loss of                10% loss of
                                   Customers                 Customers

                                   95% Retention             90% Retention
                                   Rate                      Rate




                                         AFTER 14 YEARS:
                         SERVICE FIRM                      SERVICE FIRM
                                 ‘A’                           ‘B’
                        DOUBLES ITS                        HAS THE SAME
                        CUSTOMER BASE                      CUSTOMER BASE

          It is more expensive to acquire customers than retain customers. But customer retention becomes
          a challenge  in the  era of  heightened competition  and decreasing customer loyalty.  Various
          researches point out to the fact that customer acquisition is five to ten times more expensive than
          customer retention.

          The above diagram explains the leaking bucket theory that all things being equal (firm size,
          service offer, rate of customer acquisition, etc.), a firm, which has half the customer leakage than
          its rival, will have double the market base in fourteen years. Or putting it in a different way, if
          two service firms intend to have the same market base but have different customer retention
          capabilities, they will require different customer acquisition rate or volume. The service firm
          with better customer retention will need to acquire fewer customers than its rival, suffering less
          cost and –  at the same time fine-tuning to focus on  high transaction,  high profitability, and




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